About Aave (AAVE)

What is Aave (AAVE)?

Aave (AAVE), formerly known as ETHLend, stands as a pioneering force in the decentralized finance (DeFi) space. Aave functions as a decentralized lending protocol on the Ethereum blockchain, allowing users to borrow a diverse range of cryptocurrencies. Notably, Aave introduces a unique lending Decentralized Application (DApp) that empowers borrowers and lenders to customize the terms and conditions of loans, all executed and secured within smart contracts.

At its core, Aave serves as a fundamental layer in the DeFi ecosystem, eliminating the need for intermediaries in lending, borrowing, and interest earning on crypto assets. Users participating in the Aave platform can deposit funds into a neobank, wherein others can borrow these assets. What sets Aave apart is the introduction of aTokens—representing the deposited assets and offering a dynamic profit margin influenced by market conditions and lending duration. This innovative approach allows users to potentially maximize returns on their deposits.

Aave's commitment to innovation is further exemplified by features like flash loans—ultra-short duration, uncollateralized loans designed for quick repayment within the same block. These flash loans find utility in arbitrage, refinancing, and liquidation scenarios. Aave's expansion beyond Ethereum to multiple chains underscores its commitment to accessibility. Additionally, it has introduced a market for Automated Market Maker (AMM) tokens and seamlessly incorporated cross-chain signaling into its backend.

History of Aave (AAVE)

Inception and ETHLend Era (2017-2018)

Founded in 2017 by Stani Kulechov as ETHLend, Aave initially emerged as a pioneering lending application on the Ethereum blockchain. The company's commitment to decentralized finance led to its rebranding as Aave on September 18, 2018, signaling a shift towards expanding beyond Ethereum and enabling lending for various cryptocurrencies.

Funding and Growth (2017-2020)

Aave's journey involved strategic funding milestones, commencing with a successful initial coin offering (ICO) on November 25, 2017, raising $16.2 million. Notably, Aave achieved a significant DeFi milestone on August 15, 2020, becoming the second protocol to surpass $1 billion in Total Value Locked (TVL). Aave's continuous growth was reinforced by funding rounds, including investments from Framework Ventures, Three Arrows Capital, and a substantial $25 million injection from various investors on October 12, 2020.

Aave V1 and V2 Innovations (2020-2021)

The introduction of Aave V1 marked a critical phase on January 7, 2020, unveiling an open-source, non-custodial protocol supporting diverse assets, flash loans, and interest-bearing tokens (aTokens). Aave V2, launched on December 3, 2020, brought significant enhancements like repay with collateral, native trading functionalities, and governance updates. The continuous evolution showcased Aave's commitment to refining user experiences and expanding functionalities.

Aave V3 and Cross-Chain Expansion (2022-2023)

Aave's evolution continued with the release of Aave V3 on March 16, 2022, across multiple networks, introducing features like portals, high-efficiency mode, isolation mode, gas optimization, and risk management improvements. Simultaneously, Aave redefined its app on IPFS for streamlined transactions. On January 7, 2023, Aave proudly deployed Aave Protocol V3 on the Ethereum Mainnet, demonstrating its dedication to advancing decentralized finance.

GHO Stablecoin and Avara Rebrand (2023)

In a significant move, Aave introduced the GHO stablecoin on July 16, 2023, offering a decentralized, multi-collateral stablecoin within the Aave Protocol. This innovative addition allowed users to mint GHO by providing collateral, contributing to the stability of the protocol. Furthermore, on November 16, 2023, Aave rebranded to Avara and marked its acquisition of Los Feliz Engineering, showcasing a strategic shift and continued commitment to the dynamic web3 landscape.

How Does Aave (AAVE) Work?

How to interact with Aave protocol?

As a Supplier:

Engaging with the Aave protocol as a supplier is simple. Head to the "Supply" section, choose your asset, input the amount, and confirm the transaction. This not only earns you passive income based on market demand but also acts as collateral for borrowing. The interest earned offsets borrowing costs. For detailed steps, visit the dashboard's "Supply" section. Aave V3 introduces supply caps visible on a live dashboard.

Withdraw assets without opting out of collateral, ensuring they're not actively used for borrowing to prevent potential liquidation.

As a Borrower:

For liquidity without selling assets, borrow from Aave. Supply an asset as collateral, then in the "Borrow" section, choose the asset, set the amount, select stable or variable rate, and confirm. Repay in the same asset borrowed, or use collateral for repayment in Aave V2.

The maximum borrowing amount depends on supplied value and available liquidity. Check risk parameters for specifics. Switch between stable and variable rates at any time. Monitor your borrowing rate in the dashboard's Borrowings section.

Understand the health factor, representing safety against borrowed assets. A factor below 1 risks liquidation. Increase it through repayment or additional deposits to safeguard against liquidation.

Repayment has no fixed period. Visit the Borrowings section, click "Repay," select the amount, and confirm. Avoid liquidation by repaying or depositing more assets. Repayment significantly improves the health factor.

How dose Flash Loan work?

Flash loans have also been used to automate various strategies and tap into deep liquidity from Aave.

The process of a flash loan involves several steps. First, the borrower selects a DeFi platform that supports flash loans . Then, the borrower creates a smart contract that contains the borrowing, exchange, use, and repayment steps . These steps are all executed within the same transaction, ensuring that the loan is promptly returned. If any of these steps fail, the entire transaction is rolled back, ensuring the security and integrity of the process.

One of the key advantages of flash loans is their ability to provide liquidity for arbitrage trading. Traders can quickly take advantage of price discrepancies between different markets by borrowing large sums of money without upfront collateral. This allows them to make quick profits in the DeFi space. However, it is important to note that flash loans have also been used nefariously in the past, resulting in significant losses Despite the risks, the potential rewards of using flash loans for arbitrage trading are significant. These loans have enabled users to create new financial products and services, such as the creation of GHO stablecoins without requiring collateral.

Token Economics

Token Utilities

The AAVE token plays a pivotal role in the Aave Protocol's ecosystem. It empowers decentralized governance, aligning stakeholders and ensuring protocol growth. Multilevel governance fosters economic co-dependency and risk awareness, driving active participation. AAVE holders contribute to the Safety Module, mitigating liquidity crises and earning Safety Incentives and protocol fees. The token facilitates voting on proposals affecting risk parameters, incentives, and protocol improvements. Aavenomics serves as a catalyst for long-term growth, emphasizing systemic incentives and efficient multilevel governance. Beyond governance, AAVE can be staked for insurance, earning protocol fees and rewards.

Token Distribution

• Core Development: 30%
• User Experience Development: 20%
• Management and Legal: 20%
• Promotions and Marketing: 20%
• Miscellaneous Costs: 10%

In 2017, Aave's ICO raised $16.2 million, and in July 2020, a token swap reduced the supply from 1.3 billion LEND to 13 million AAVE, introducing governance. AIPs now empower the community to guide Aave's development, making governance a significant utility of AAVE.

Why Is Aave (AAVE) Valuable?

Aave (AAVE) is a valuable cryptocurrency due to several key factors.

Firstly, Aave is a leading decentralized lending platform that allows users to earn interest on deposits and borrow assets with variable or stable interest rates . This feature attracts users who want to maximize their returns on crypto assets.

Furthermore, Aave has a strong revenue model, which is crucial for its development and sustainability. The platform generates revenue through the interest paid by borrowers, a portion of which is distributed to lenders and Safety Module stakers. This revenue is used to incentivize AAVE holders to backstop risks in the protocol and to pay contributors and developers. Aave's governance is active, and the protocol provides financial reports and transparency.

Additonally, Aave's popularity and market dominance also contribute to its value. It is one of the top lending projects on Ethereum and has seen significant growth in terms of Total Value Locked (TVL) Aave leads the pack in terms of users, revenue, developers, and TVL.

Finally, Aave has been expanding its reach and has released a market for AMM tokens, a social network, and has built cross-chain signaling into their backend. It has also expanded to multiple chains, including Ethereum, Arbitrum, Avalanche, Polygon, and Optimism. Tts plans to create a super-app demonstrate its ambition to become a core DeFi layer for the entire ecosystem. This expansion increases its reach and potential user base, further enhancing its value.